The U.S. Federal Reserve earlier this month said the median net worth of the American family fell by almost 40% between 2007 and 2010, wiping out 18 years of economic progress and cutting middle-class wealth back to levels not seen since the early 1990s.
The central bank study really underscores the deep-and-lasting pain inflicted by the global financial crisis of 2008-2009.
And it reminds us how important it is for investors to take control of their own financial destiny.
On that last point, at least, the timing couldn't be better. June marks the end of the second quarter, and the mid-point of the year.
That makes this a perfect time to assess your finances, your objectives and your plan for achieving those goals.
Here are some tips that will help you make that assessment.
- Polish Your Plan: There's an old adage that says, in essence, "If you fail to plan, you plan to fail." Nowhere is that more true than with investments. The year's mid-point is a perfect time to update your investment plan. If you don't have one, start one. This plan should include your long-term financial goals, your risk tolerance, your current assets and liabilities, and any special considerations that will affect this plan. In short, design your plan to ask and answer: Specifically what is it that you're trying to achieve in life? Don't ignore your dreams – as unlikely as they might seem right now. By being honest about all that you hope to achieve, you're a lot more likely to actually make it all happen. And we here at Money Morning promise to do all we can to help you achieve your goals.
- Review Your Holdings: Once you've adjusted your plan (or created a new one), take a look at your investment holdings. Does everything still fit and contribute to that objective? Once you've made that determination, take a look at the individual holdings from a performance/potential standpoint. Is the reason you purchased each security still valid? How is each holding performing? If the stock, bond or ETF you're holding is lagging in performance, or even showing a loss, is there still enough upside potential to warrant keeping that particular security? If a security is showing a big loss, or now lacks the upside promise it once had, don't be afraid to prune it.
- "Get Real" About Risk: A number of my Private Briefing subscribers have written in and conceded that they rode one or more of our recommendations to big – even massive – gains … only to give those gains back when the market corrected this spring. Indeed, some even allowed gains of 50% or more turn into losses. This underscores the reason that risk-management is a crucial element of any winning investment strategy. A number of other subscribers proudly recounted how they used some of our "Buy" recommendations and our advice to use "trailing stops" to lock in high-double-digit gains on such stocks as NetQin Mobile Inc. (NYSE ADR: NQ). Trailing stops are just one of the risk-management techniques we advocate. And we'll be talking about others in the weeks to come.
- Leave No Stone Unturned: In a market as volatile and uncertain as this one, you need to operate like a top-tier company – maximizing your income and minimizing your costs. Focus on income by making sure to add high-yielding stocks to your holdings, and consider using "covered calls" to maximize that income further.
- Don't Run For Cover: A once-widely used investing adage used to tell individual investors to "pay yourself first" – meaning they should make sure to at least put something away on a regular basis before all the bills were paid and other liabilities were taken care of. There's a solid bit of logic hidden in that piece of homespun advice. Statistics show that individual investors (but not their institutional counterparts) missed the market rebound that started last fall and carried over into the New Year. Even with the recent downturn, the institutions that did take part are ahead of the game for having done so. As Capital Wave Forecast Editor Shah Gilani demonstrated last week in a Money Morning article entitled "How to Spot Money-Making Opportunities-Even in a Down Market," you can profit in any kind of market … bull or bear. Indeed, Shah has pulled down some of his biggest trading profits on the short side of the equation.
With a well-defined, nicely muscled plan like this, the last six months of the year could be much better than the first. Indeed, six months from now, let's look to make it more of a celebration than a review.
If you embrace these tactics, you certainly won't be losing ground like the rest of middle-class America.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.